Doctrine of Unjust Enrichment Prevents Refund: Bombay High Court in Colgate Octroi Case

High Court dismisses Colgate Palmolive’s plea challenging octroi levy on MRP, citing procedural lapses and unjust enrichment. The Bombay High Court has dismissed the writ petition filed by M/s. Colgate Palmolive (India) Ltd. Challenging the levy of octroi duty on the basis of Maximum Retail Price (MRP) by the Mumbai Mahanagar Palika. The court emphasized that granting any refund would result in unjust enrichment of the petitioner and highlighted the procedural lapses in the company’s challenge against the octroi levy from 1995 to 2001.

M/s. Colgate Palmolive (India) Ltd. Filed a writ petition against the Mumbai Mahanagar Palika, challenging the determination of octroi duty based on MRP as unconstitutional and ultra vires the Bombay Municipal Corporation (Levy) of Octroi Rules, 1965. The company sought relief to levy octroi based on the invoice value and refund the excess octroi paid from April 1995 to March 2001.

The court noted that Colgate Palmolive did not pay the octroi duty “under protest” from 1995 to 2001, nor did it seek a timely determination of the correct rates from the Deputy Assessor and Collector (Octroi). The court observed that the petitioner availed itself of the alternative remedy of appealing to the Small Causes Court only from 2001 onwards, which ruled in favor of the company for subsequent years.

The court held that refunding the octroi duty to Colgate Palmolive would lead to unjust enrichment as the company likely passed the tax burden onto consumers. Justice M.S. Sonak remarked, “Allowing any refund to the petitioner would only unjustly enrich the petitioner even though it is not established that the petitioner has suffered any real loss or prejudice.”

The court discussed Rule 2(7)(a) and Rule 2(7)(b) of the Bombay Municipal Corporation (Levy) of Octroi Rules, 1965, which outline the determination of value for octroi purposes. The court found that Colgate Palmolive did not establish that the invoices provided were genuine or that the value should be based solely on the invoice value rather than MRP.

Citing the Supreme Court’s ruling in Mafatlal Industries Ltd. Vs. Union of India, the court reiterated that a refund of taxes can only be claimed if the petitioner proves that it did not pass the tax burden onto consumers. The court emphasized the principle that allowing such refunds without this proof would harm public interest and financial administration.

Justice M.S. Sonak stated, “The power of the court is not meant to be exercised for unjustly enriching a person. The doctrine of unjust enrichment is a just and salutary doctrine, ensuring that no person can seek to collect duty from both ends.”

The Bombay High Court’s dismissal of Colgate Palmolive’s petition underscores the judiciary’s adherence to equitable principles in tax matters. The judgment highlights the importance of procedural compliance and the doctrine of unjust enrichment in adjudicating refund claims. This decision sets a significant precedent for similar cases, reinforcing the need for businesses to ensure proper documentation and timely challenges to tax levies.

Date of Decision: 26 July 2024

M/s. Colgate Palmolive (India) Ltd. V. Mumbai Mahanagar Palika and anr.